Ford Motor's Earnings Preview: Future Prospects of the Car Industry

The upcoming earnings release from Ford Motor Company is not just about the impact on its stock, but also provides valuable insights into the future prospects of the entire car industry. As the outlook remains uncertain, this financial report will shed light on the current situation.

While U.S. new car sales saw a significant increase of over 10% in 2023, the growth in electric vehicle sales has slowed down considerably. Additionally, rising labor costs combined with declining new-car prices, despite higher interest rates affecting buyers' monthly payments, presents a complex environment for the industry.

Ford's fourth-quarter numbers are due to be released after the market closes on Tuesday. According to FactSet, analysts expect earnings per share of 12 cents from sales of $43.1 billion. In comparison, Ford reported earnings per share of 51 cents from sales of $44 billion in the same period a year ago.

It's important to note that last year's United Auto Workers strike had a significant impact on the results, making the current figures less significant compared to Ford's outlook for 2024.

Looking at General Motors' results can provide valuable insight into what is possible. Following their announcement of an expected operating profit of approximately $13 billion for 2024, compared to $12.4 billion in 2023, GM's stock rose by 9.4%. This positive response from investors indicates the importance of future expectations. GM had earned $12.4 billion in 2023.

Analysts predict that Ford will achieve a 2024 operating profit of around $9.6 billion. These estimates have remained relatively stable since GM released its results.

For the fourth quarter and full year of 2023, Ford is anticipated to report operating profits of $900 million and $10.4 billion, respectively. It should be noted that the $900 million profit is lower than the $2.2 billion reported in the previous quarter. Ford has estimated that the UAW strike cost the company approximately $1.7 billion.

In conclusion, Ford's upcoming earnings report will provide critical insights into the car industry's future, considering the recent conflicting signals. The outlook for electric vehicle sales, labor costs, and new-car prices will be closely watched, shaping investor sentiment and industry expectations.

Ford Expected to Provide Strong Guidance in Q4 Earnings

Analyst Mike Ward from Freedom Capital Markets predicts that Ford's guidance in the upcoming fourth-quarter earnings will exceed the market's expectations of $9.6 billion. Ward anticipates a figure closer to $12.8 billion.

One factor that may contribute to the improved earnings is a reduction in investment in electric vehicles. Ford's EV division, known as Model e, reported a loss of $3.1 billion in the first nine months of the year.

Ward rates Ford shares as Buy, with a price target of $20 for the stock. However, other analysts are not as optimistic. The average price target set by analysts for Ford stock is approximately $12.50, while the shares closed at $11.59 on Monday. Only 37% of analysts covering Ford stock recommend a Buy rating, compared to the average Buy-rating ratio of about 55% for stocks in the S&P 500.

Based on options markets, it is expected that Ford stock will experience a 6% movement, either up or down, following the earnings announcement. Historically, shares have declined by an average of 5% after the past four quarterly reports, with the decline deepening each time.

Over the past 12 months, Ford stock has fallen by about 8%. In contrast, the S&P 500 and Nasdaq Composite have seen gains of approximately 20% and 30%, respectively.

Investor sentiment towards Ford has been affected by rising interest rates, higher labor costs, and slower demand growth for electric vehicles. Despite these challenges, Ford had one of its most successful years ever in 2023, demonstrating resilience amidst the headwinds and losses in the Model e division.

Ford will hold a conference call at 5 p.m. Eastern time to discuss its results.